In India, many individuals face challenges when applying for a traditional credit card, particularly due to low or no credit scores.
However, a secured credit card against a Fixed Deposit (FD) offers a practical alternative.
This option is suitable for those who want the benefits of a credit card but may not meet the strict eligibility criteria of unsecured cards.
What Is a Credit Card Against FD?
A credit card against FD is a type of secured credit card offered by banks in exchange for a fixed deposit held by the user. Unlike traditional credit cards that rely on an applicant’s income and credit score, this card uses your fixed deposit as collateral.
This arrangement makes it easier for individuals without a strong credit history to get access to a credit card. Additionally, the credit limit offered on this card is usually a percentage of the FD amount, typically ranging between 75% and 90%.
Key Features of a Credit Card Against FD
Minimal Eligibility Requirements
Since the card is backed by your FD, banks have minimal eligibility requirements. This makes it a viable option for students, new earners, or those with a limited credit history. Most banks will only need you to open a fixed deposit with a minimum amount (usually around ₹10,000 or more) to qualify for this card.
Credit Limit Based on FD
The credit limit is directly tied to the value of your fixed deposit. Generally, the limit is set between 75% to 90% of the FD amount. For instance, if your FD is ₹1 lakh, the credit limit on the card could range between ₹75,000 and ₹90,000, depending on the bank’s terms.
Lower Interest Rates
Compared to unsecured credit cards, the interest rates on credit cards against FDs are relatively lower. Since the card is secured with your deposit, the risk to the bank is lower, resulting in reduced interest rates if you carry forward your balance.
No Impact on FD Earnings
One of the key advantages of this type of credit card is that your fixed deposit continues to earn interest even while being used as collateral. The FD remains untouched, and you can continue to earn interest at the prevailing rate, making it a win-win situation.
Easy Application Process
The process of applying for a credit card against FD is straightforward and quick. Most banks allow you to apply online, and approval is usually granted within a short time, provided you have the required FD in place.
Build or Improve Credit Score
A credit card against an FD can be an excellent way to build or improve your credit score. By using the card responsibly—making timely payments and keeping the credit utilisation low—you can enhance your creditworthiness over time. This is particularly beneficial for individuals who have struggled to get an unsecured credit card.
Benefits of a Credit Card Against FD
Easier Access to Credit
One of the most significant benefits of this card is its accessibility. People who may not qualify for unsecured credit cards due to a low credit score or lack of income proof can easily get a credit card against their FD. It provides a way to access the benefits of credit cards, such as reward points and cashback offers, without needing a high credit score.
Secured Yet Risk-Free for the User
While the FD is pledged as collateral, users don’t have to worry about losing their deposit unless they default on payments. As long as the bills are paid on time, the FD remains untouched, and the cardholder can continue to use the card’s features.
Flexible Credit Card Benefits
Despite being secured, these cards often come with the same benefits as regular credit cards. You can still earn reward points, access offers on online shopping, and even enjoy benefits such as fuel surcharge waivers.
In some cases, the card may also offer free insurance cover or cashback offers based on spending categories.
Interest-Free Period
Like unsecured credit cards, most secured credit cards offer an interest-free period, which is usually between 20 to 50 days. This allows you to make purchases and repay them without any interest if paid within the stipulated time frame.
Credit Limit Increases with FD Growth
If you top up your fixed deposit, the credit limit on your card increases proportionally. For example, increasing your FD amount from ₹1 lakh to ₹1.5 lakh can raise your credit limit accordingly. This flexibility makes the card adaptable to your growing financial needs.
No Lock-In for FD
In most cases, banks allow you to close your FD early if necessary. However, closing the FD will lead to the termination of the credit card as well. This feature ensures that you are not bound to keep your deposit locked in for a long duration, giving you more financial flexibility.
Who Should Consider a Credit Card Against FD?
This type of credit card can be useful for various types of individuals:
First-Time Credit Card Users
If you have never used a credit card before, this is a safer way to start and build your credit history
Individuals with Low Credit Scores
If your credit score is low and you have been rejected for unsecured credit cards, this could be a good option to start improving your score
Students or Young Professionals
For young earners who have just entered the workforce, this can be a way to manage finances without the stringent approval processes of traditional credit cards
Final Thoughts
A credit card against FD can be a smart financial tool for those looking to build or improve their credit score or simply get easy access to credit. It offers flexibility and features similar to regular credit cards, while the FD continues to earn interest. However, as with any financial product, it’s important to use it responsibly to avoid financial stress.
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